Effect Of Outsourcing Logistics to Third Party Providers On Performance Of Manufacturing Firms In Kenya

Abstract

In the past large manufacturing organizations found it beneficial to vertically integrate supplier functions and distribution activities to maximize production and logistical control. However, modern companies rely heavily on outsourced services and suppliers that contribute to the production process in one or more ways. Logistics outsourcing aims at meeting core objectives which are at the heart of an organization profitability and success. This state of affairs has made Third Party Logistics providers to play a very important role the performance of these firms. This study set to identify the effect of outsourcing to Third Party Logistics Providers on Firm Performance by manufacturing firms in Nairobi. It did so by investigating the effect of integrating operations, outsourcing warehousing Operations, outsourcing transport operations and outsourcing inventory operations on the performance of manufacturing firms in Kenya. The study’s sample, whose target population was manufacturing firms based in Nairobi and its environs, was generated using cluster sampling. The firms were clustered into groups based on sectors. A descriptive research design was adopted because it made it possible to look into every form of data that is possible and also respondents were able to respond to all forms of data such as personal accounts, case studies or observations. Self-administered questionnaires were used to collect data after which it was analyzed using SPSS (22). Results that were obtained from this analysis were then used to make valid conclusions and recommendations to all parties involved in manufacturing industries as far as the effectiveness of 3PL Practices is associated with Firm Performance. Results obtained from the study formed the basis of the conclusion to the effect that outsourcing logistics to third party providers has a positive effect on firm performance. All the studies four components of logistics outsourcing, and which formed the study objectives sought by the study, had a positive effect on firm performance. They included Integrating operations, Warehousing operations, Transportation operations and Inventory operations. The study therefore concluded that outsourcing these four components increases firm performance. Based on the research findings, the study recommends manufacturing firms to consider outsourcing their operations to Third Party Logistics companies in order to reap the immense benefits of increased productivity, cost reduction, reduced employee numbers, increased customer satisfaction, growth in market share, higher profit margins, and finally increase on return on Equity. Manufacturing firms should chose to outsource to Third Party Logistics providers as a major strategy aimed at achieving significant cost and differentiation advantage. This means that they are able to differentiate themselves in the eyes of the customer as well as lowering their operating costs.